TM'S DEMERGER ON TRACK FOR COMPLETION IN 2Q 2008

RegionCo and FixedCo Set to Pursue Distinct Aspirations and Strategies Commitment to active capital management reinforced through RM1.63 billion special cash dividend

Telekom Malaysia Berhad’s (TM ) Demerger exercise is on track for completion in 2Q 2008 as it received the nod from its Board of Directors to proceed with the final terms of the Demerger, pursuant to which the demerger agreement was signed this morning.

Earlier in September, TM announced that it is undertaking a Demerger exercise to separate its mobile and fixed businesses into two distinct entities;

• RegionCo, which will include TM’s mobile and overseas operations under TM International, and domestic mobile operations under Celcom (Malaysia) Berhad. It is intended for RegionCo to be demerged from TM Group and be separately listed

• FixedCo, which will retain the listed TM’s domestic interests in fixed-line voice, data and broadband, Global Business and other non-telecommunications related services under TM Ventures

At the media briefing held here today, TM’s Chairman Tan Sri Dato’ Ir. Md. Radzi Mansor said, “We are pleased to announce that the Board of Directors has approved the final terms of the Demerger, paving the way for completion of the exercise in 2Q 2008. We are closer now to capturing Demerger benefits which will enable us to accelerate operational improvements and growth and further unlock shareholder value. In addition, with a commitment to actively manage capital requirements and shareholder returns, the TM Board has also approved to return RM1.63 billion to shareholders via a special cash dividend in respect of the financial year ending 31 December 2007.”

Tan Sri Dato’ Ir. Md. Radzi Mansor went on to add “Upon completion of the Demerger, RegionCo and FixedCo will be able to focus clearly on its aspirations, strategic direction and core activities. The two companies will also each have a capital structure suitable to its business, with funding capacity for growth and investment requirements.”

The Demerger will be effected through an internal restructuring and distribution of TM International shares to TM shareholders.

Internal Restructuring

• TM International will be acquiring Celcom from TM at its cost of investment of RM4,677 million;
• TM International will be acquiring the SunShare Investments Ltd redeemable preference shares from TM at its cost of investment of RM141 million;
• TM will be acquiring 51% stake in Fibrecomm Network (M) Sdn Bhd  from Celcom at its cost of investment of RM33 million;
• TM will be transferring the 3G Spectrum Assignment to Celcom at its book value of RM40 million;
• TM International will settle its existing net inter-company balances of RM3,041 million to TM; and
• The above will be settled via a mixture of new TM International shares and cash and/or amounts owing to be settled at a later date.

Distribution of TM International shares to TM shareholders
Upon finalisation of the asset / shares transfer and settlement of inter-company balances, RegionCo’s share capital will be equal to FixedCo’s to facilitate a one-for-one distribution of shares.

With the completion of the share distribution, TM International will cease to be a subsidiary of TM and effectively demerged from TM.

Tailored Dividend Policies
As previously announced, management intends to pursue tailored dividend policies for RegionCo and FixedCo going forward.
 
FixedCo will be adopting a progressive dividend policy to ensure stable and sustainable dividends to shareholders while maintaining an efficient capital structure and ensuring sufficiency of funding for future growth. With a strong capital structure post-Demerger, FixedCo intends to pursue an active capital management policy and distribute a minimum of RM700 million or up to 90% of its normalised profit after tax attributable to its shareholders, whichever is higher. As part of active capital management, FixedCo will continue to monetise some of its non-core assets.

In determining the capital structures of FixedCo and RegionCo, TM’s Board has considered the expected dividend payment capacity of RegionCo, bearing in mind RegionCo’s strategy to explore regional growth opportunities and the dividend policies of comparable companies.

RegionCo's dividend payout ratio as a percentage of normalised profit after tax attributable to its shareholders is expected to not exceed TM Group's payout ratio in recent years. The actual dividend policy of TM International shall be determined at a later date by TM International’s Board.

It should be noted that dividends to shareholders in the future will depend upon a number of factors, including RegionCo’s level of cash and retained earnings, results of operations, business prospects, capital requirements and surplus, general financial conditions, contractual restrictions and other relevant factors.

RegionCo Aspiration – A Leading Mobile Operator in South / Southeast Asia
RegionCo has a strong presence in the fast growing South / Southeast Asia market with a unique portfolio of assets across 10 markets in Asia, 8 of which are mobile operations. It is one of the largest mobile operators in South and Southeast Asia in terms of revenue. With a large population base and low overall mobile penetration, the current asset portfolio offers strong growth potential. RegionCo will also benefit from synergies driven from its assets which among others include roaming traffic, joint procurement and best practice sharing. RegionCo had approximately 35.7 million subscribers as at the end of 3Q 2007 and is well positioned to capture future growth opportunities in the region. Moving forward, RegionCo aims to further expand its presence in the region.

RegionCo is targeted to be listed on the Main Board of Bursa Securities in 2Q 2008. With independent access to the capital markets, RegionCo will have greater freedom to pursue its own investment strategies. RegionCo will be seeking a shareholders’ mandate to enable it to issue up to 10% of its share capital base to facilitate fund-raising if and when specific investment opportunities arise over the coming period.

Finally, while management will remain open to evaluating value-enhancing proposals from potential strategic partners that can contribute meaningfully to RegionCo's regional portfolio, its first priority is to ensure the successful execution of the Demerger and the realisation of related operational benefits.

FixedCo Aspiration – Malaysia’s Leading Next Generation Communications Provider
FixedCo has a strong market position with 95% share of the fixed-line market and 96% share of the broadband market in Malaysia. As at end of Q3 2007, its fixed-line customer base stood at 4.4 million and broadband customers were 1.2 million. FixedCo aspires to become Malaysia’s leading next generation communications provider, embracing customer needs through innovation and execution excellence.

Moving forward, FixedCo will focus on the next wave of Performance Improvement Program (PIP) which targets on stabilizing and creating momentum for all its business segments. This revolves around three main areas. Firstly, driving operational and commercial excellence which among others include unlocking sales and channel management potential, securing growth in wholesale and global business, and driving quality and customer service improvement. Secondly, aggressive implementation of High Speed Broadband (HSBB) with key priorities to drive seamless integration of HSBB to entire FixedCo business elements, expand its offering from access to value-added lifestyle enhancing services and improve competitiveness and agility, leveraging Next Generation Network (NGN) transformation. Thirdly, continuing efforts in rationalisation / monetisation of non-core assets.

Indicative Timeline
Barring any unforeseen circumstances and subject to all the required approvals being obtained, TM’s Demerger exercise is expected to be completed by 2Q 2008 as per our initial announcement in September. The Demerger is subject to TM’s shareholders and other customary approvals from relevant authorities.

Conclusion
The Board believes that the Demerger will further enhance shareholder value through accelerated operational improvement and growth. The demerged entities, RegionCo and FixedCo will have greater execution capacity, more focus and flexibility which will make it easier for each company to seize opportunities and respond to the challenges in their respective markets.

Since the entities behind FixedCo and RegionCo currently are already largely operating as separate entities, it is business as usual for the staff and customers can be assured of continued levels of quality service from the Company.

About TM
Telekom Malaysia Berhad (TM), a leading regional information and communications group, offers a comprehensive range of communication services and solutions in fixed-line, mobile, data and broadband. As one of the largest listed companies on Bursa Malaysia with an operating revenue of more than RM16 billion, TM is driven to deliver value to its stakeholders in a highly competitive environment.

The Group places emphasis on continuing customer service quality enhancements and innovations. Currently, with investments and operations in 13 countries around Asia and globally, TM is focused on sustainable growth in both the local and international markets.

On the Corporate Social Responsibility (CSR) front, the Group has always been a major corporate contributor towards responsible activities in the belief that these practices are a fundamental tenet of good corporate governance. The Group promotes 3 major platforms i.e. education, sports development and community/nation-building. Under education, TM has spent some RM800 million to develop Multimedia University into one of the top universities in Malaysia with more than 20,000 students. TM has also provided scholarships to over 10,000 graduates pursuing academic programs locally and overseas. On the sports front, TM is actively contributing towards the upliftment of football at all levels while under the community/nation-building platform, the Group contributes towards causes that bring value to the community and nation at large.

For further information on TM, visit www.tm.com.my.

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